A Free Lunch ?

The London Paper  –  30 Oct 2006

Restaurant owners across the City will have witnessed an increase in business over the last few weeks and it’s no doubt a bit of mystery to them. But there’s a simple reason why investment bank’s analysts’ expense accounts take a real battering in October and that’s because the Institutional Investor (II) survey began this month. This is an attempt to gauge who are the best sector analysts in the City. The voters in these surveys are the ‘clients’ i.e. the fund managers who are trying to invest your pension fund or ISA wisely. Theoretically, it should be the analysts’ intelligence and knowledge that dictates the voting. Of course, in reality, it’s often whether the client was taken out to a Gordon Ramsey restaurant this month.

I personally find client entertainment by far the most acceptable part of an otherwise deeply tedious job. The only problem with it, of course, is that the majority of the clients are tiresome buffoons. The first time I take a client out I’ll always try and avoid talking shop with them in the often vain hope that they will realize that eating a gourmet lunch over a couple of bottles of wine really shouldn’t be tarnished by a conversation about PE ratios and dividend yields. If the client understands that this element of the job is just an excuse to have a 300 pound meal with someone you can vaguely tolerate as a dining companion then they may reach the exalted heights of becoming one of my ‘regulars’. These are clients who have virtually become ‘friends’ (if such a concept exists in the City) and will be taken out perhaps 10 times a year. Her indoors sometimes complains that I take certain clients out more often than her but she doesn’t realize that the best I can get from schmoozing her is some fringe benefits later that night whilst a good client relationship can add 10K to my bonus.

Nearly all research analysts likes to pretend that these surveys aren’t important but we all know that every head hunter in town uses them as their first port of call when selecting possible employees. Anyone seeking a possible job move knows that the results come out in February, which being post-bonus, is the perfect time to secure a guaranteed bonus for next year by moving (or threatening to move) to some other dreadful bank. What analysts may forget is that it is perfectly innocent investors and pensioners who are ultimately paying for every mouthful of foie gras and bottle of champers that they order for their clients. This is because the cost of client entertainment is ultimately paid for by the commission we charge for share dealing. If I had an ethical bone it my body it would make my lobster taste a little less palatable knowing that Mrs Miggins’ trip to Bogner Regis may have to be cancelled this year due to my quest to be a highly rated (and hence highly paid) analyst.

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